In a market downturn, it is typical for alternative mechanisms to be negotiated that seek to reflect the change in circumstances and allow for a sale to progress accordingly. Some can be effective, but we are advising that our clients exercise caution, as some proposals can also create unintended consequences that may look less appealing in the medium to longer term, and with the benefit of hindsight.
Some parties are starting to discuss so-called ‘COVID-19 clauses’. In this situation, landowners should understand clearly that such provisions will turn sale contracts into conditional agreements and quasi options in some cases. As such, whilst this route may offer the certainty of an exchange of contracts in the short term, it may simply ‘kick the can down the road’ and will certainly delay receipt of funds.
If such clauses are being considered, landowners need to think carefully about questions such as how to define a ‘COVID-19 event’ and how to handle the potential for a further wave of the pandemic.
It will also be important to carefully consider other potentially unintended consequences and the use of provisions such as Long Stop Dates.
Some landowners may consider agreeing to requests from purchasers for deferred payment terms as an appropriate compromise to secure a sale in the short term (for example, deferring 50% of the sale proceeds by 12 months after legal completion). Such proposals will assist with purchasers cashflow and as such should only be considered where purchasers maintain their ‘headline’ offers.
Where our clients are inclined to agree to such terms, we are working with them to ensure that adequate security is provided by the purchaser in return, to safeguard our clients against default or non-payment of deferred monies in the future.